FOOD & BEVERAGES: Still No Drop In Food Prices

Recent Western Cape Business News

A report released yesterday by the trade union Solidarity shows that three of South Africa’s largest supermarket groups are still not reducing their prices, despite fuel price cuts. Over the past month Solidarity has conducted a price study at outlets of Pick ŉ Pay, Spar and Checkers. The results of Solidarity’s study show that there has not been any substantial drop in prices. This is despite the fact that the fuel price has dropped by 40% since June last year.

Spar’s price for the entire basket decreased slightly over the first three weeks of the study, but increased again by R9,96 in the fourth week. The opposite happened at Pick ŉ Pay. Their prices increased over the first three weeks, and then dropped by R4,10 in the fourth week. Prices at Checkers increased slightly in the first week, then dropped by R3,10 in the following week and remained the same in the fourth week.

The food basket consisted of Albany white and brown bread, Clover full-cream milk, Flora cooking oil, Stork margarine, Selati sugar, Tastic rice, Fatti’s and Moni’s macaroni, Impala maize flour, Ricoffy coffee and Omo washing powder, since the prices of these products are affected by both local factors and international factors, such as the oil price. The study shows that Pick ŉ Pay is the cheapest, followed closely by Checkers. Spar is the most expensive.

According to the report it takes about four months for the lower fuel prices to filter through the chain. Prices have already been drastically lowered at the farm gates since July last year and the reduction could in fact be detected at some factories three months later. However, food prices at supermarkets were still increasing at supermarkets in November – four months later. The report clearly indicates that farm and factory prices sometimes show negative growth, but the same is very seldom seen at supermarkets.

Packaging is another input cost that is often blamed for increased prices. Plastic, steel and paper are the most common packaging materials. The price of oil, from which plastic is manufactured, has dropped by 70% since the middle of 2008, while steel prices dropped as low as $600 per ton. The price of paper pulp also decreased.

Supermarkets have the market power and therefore the strongest buying power in the supply chain. Pick ŉ Pay has a 33% market share in the industry. It is highly unlikely that they have no bargaining power in terms of prices at suppliers.

“Last year the finger was frequently pointed at the fuel price as the culprit for the rising food prices. Now it is said that the fuel price makes up only a small part of food prices and that things such as packaging also have a large influence on the prices of products. However, our study shows that both these factors are actually factors in favour of food price reductions,” said Jaco Kleynhans, spokesperson of Solidarity.

“Yet farmers are paid less and less for their products while the consumer forks out more and more money at the shops. Somewhere someone is putting money in their back pocket while everyone in the chain is flinging mud. In fact, the competition commission is investigating suppliers in two sectors of the food industry and it is a hopeful sign that they are now investigating the entire supply chain instead of one role-player. It is time that those involved in the chain got together and found a way to put an end to the exploitation,” Kleynhans added.